The U.S. Treasury Department and Federal Reserve have failed to exercise proper oversight of American International Group Inc., despite more than $150 billion in taxpayer funds that have been used to support the insurance giant, two federal lawmakers charge.

In a letter to Federal Reserve Chairman Ben Bernanke and outgoing Treasury Secretary Henry Paulson, Reps. Joseph Crowley, D-NY, and Paul Kanjorski, D-Pa. -- the chairman of the House Financial Services Subcommittee on Capital Markets and Insurance -- ask that the agencies report to Congress by the end of January with written documentation of "the systems of review and oversight that have been established for AIG."

The lawmakers specifically request Treasury spell out how the administration has enforced restrictions on executive compensation called for under the Emergency Economic Stabilization Act.

"While questions remain about why the federal government ended up as a 79% shareholder in AIG, it is now time for the Treasury Department, the Federal Reserve and Congress to work together with AIG to make the best of an admittedly difficult situation," Kanjorski and Crowley wrote.

Crowley and Kanjorski had earlier raised concerns about a proposal by AIG (NYSE: AIG) to disburse $367 million as part of its termination of 14 deferred compensation plans (BestWire, Jan. 8, 2009). At the congressmen's behest, the company performed an internal audit that found $90.3 million of the payouts would have gone to former employees and agents, running counter to the stated goal of using the awards to retain key personnel.

Last week, AIG announced it would not pay out any of the funds to former employees. The company also canceled $3 million of the $6 million of account balances in AIG's Senior Partners Plan, as they were owed to top executive officers precluded from the awards by compensation caps instituted on companies that draw funds from the Treasury's Troubled Asset Relief Program.

"Our recent interaction with AIG gives us great hope that AIG is able and willing to live up to its responsibilities," the congressmen wrote. " We now ask the Treasury Department and the Federal Reserve to join us and work together to assure that the federal government's unprecedented intervention in AIG is beneficial to the American taxpayer and to all the parties involved."

AIG's $150 billion federal rescue package includes $40 billion from the TARP's Systemically Significant Failing Institutions Program, which purchased perpetual preferred shares in the company and warrants equal to 2% of issued and outstanding shares. The Federal Reserve Bank of New York, which provided the remaining $110 billion loan and liquidity package, holds warrants for nearly 80% of the company's equity.